03 | Global construction cost performance
Slow steps forward: gradual acceleration in activity as build costs stabilise
⏱ 14 min read
Overview
Over the past 12 months, inflationary pressures, reduced credit availability, tight capital markets and declining affordability have been widespread trends across global construction markets.
Since the beginning of the year, however, most construction markets have been gradually emerging from a period of significant economic difficulty. Countries are now diverging in their reactions to inflationary pressure. While some emerging markets have started to reduce interest rates, the majority are still contending with elevated rates.
Against this volatile backdrop, global construction presents a mixed picture. Geopolitical tensions, disrupted supply routes and increasing shifts towards nearshoring, friend-shoring and onshoring have impacted construction pricing.
Despite these challenges, most construction markets have maintained steady activity levels over the past year, with fast-growth sectors, attractive locations and hot investment areas helping to hold up overall demand.
An international ranking – where are the most expensive markets?
According to our data, New York City has retained its position as the most expensive market to build in for the second year running. The average construction cost per m2 stands at US$5,723, up 5.0 percent compared with last year.
San Francisco closely follows in second place, with an average cost of US$5,489 per m2. It similarly retains its position, after dropping from first place in 2022.
Zurich has surpassed Geneva to claim third place, with an average cost of US$5,035 per m2, up 8.2 percent on the year. Meanwhile, Geneva saw a 7.7 percent increase, averaging US$5,022 per m2.
The top of the table continues to be dominated by US locations with Los Angeles, Boston, Seattle and Chicago all showing significant increases in cost compared with 2023. Los Angeles has secured fifth place, surpassing Boston, which is now in sixth. Seattle has risen to seventh place, followed by Chicago in eighth.
The ongoing high build costs in US cities are being driven by a range of factors. At a domestic level, robust industry demand has seen activity grow, coupled with sustained high prices for labour, machinery and equipment.
London has re-entered the top ten in tenth position, with an average cost of US$4,473 per m2. Among the contributing factors of this rise are the growing construction capacity squeeze and the appreciation of the UK pound sterling relative to the US dollar.
Market volatility, tightening financial conditions and decreased affordability have influenced exchange rates significantly. Throughout 2023, many currencies depreciated against the US dollar as a result.
Notably absent from the top ten rankings are Tokyo and Osaka, which have slipped to 14th and 17th position, respectively. Japan has witnessed a significant devaluation of the yen, with the economy experiencing only moderate growth following the pandemic shock. This, paired with strong inflation elsewhere, has contributed to a wider gap. Despite this, the weakened yen has spurred foreign investment. Data centre development is gaining traction alongside large-scale projects such as the Osaka Expo and semiconductor factories in Kyushu and Hokkaido.
Source: Turner & Townsend International construction market survey 2024
Preliminaries and margins
By the end of 2023, inflationary pressures stemming from supply chain disruptions, increased costs of raw materials, transportation and energy costs began to alleviate.
Contractors and supply chains have adapted to the "new normal" following the COVID-19 pandemic and the prolonged conflict in Ukraine. However, new challenges have arisen from increasing geopolitical tensions in the South China Sea, disruptions to shipping in the Red Sea and drought in the Panama Canal. As a result, any potential reductions in prices may not translate into cost savings for those procuring construction work.
Instead, many contractors and elements of the supply chain have sought to recover some of the lost earnings in recent years. Profit margins have consequently continued to rise, perhaps driven more by market conditions than input costs. Additionally, contractors are less able to offer reduced margins to win work, given the financial strain many have come under in recent years.
Profit margins have increased from an average of 6.6 percent in 2023 to 7.0 percent in 2024, though these vary across different regions, with developing economies typically exhibiting higher margins.
Our survey identified the typical preliminary percentage on a medium commercial project with a gross floor area (GFA) of 5,000 m². These also vary by region and country, influenced by factors such as the type of construction, local building standards and the complexity of building sites.
Along with the alleviation of inflationary pressures, preliminary costs have decreased to an average of 11.6 percent in 2024 from 15.5 percent in 2023.
Our construction experts have identified the typical margins on a medium-sized commercial project with a gross floor area (GFA) of 5,000 m² in their local market.
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Figure 7: Preliminaries and margins (full ranking)
Source: Turner & Townsend International construction market survey 2024
Construction cost inflation (CCI) across 2023, 2024 and 2025
Globally, 2023 ended with an average increase of 4.6 percent in construction cost inflation. However, nuances across different regions are evident.
As general consumer price inflation slows in many economies, construction cost inflation may follow a similar trend. However, there might be differences in the magnitude of change. To understand these differences, it is important to examine the data and consider the different measures of inflation.
Consumer price indices and construction cost indices use different ‘baskets of goods’ for their calculations. Construction cost indices measure those items specific to the sector such as construction labour, materials and plant, while consumer inflation measures a much broader basket made up of a range of items consumers can purchase. Rates of change therefore vary, with consumer price inflation tending to be less volatile and showing slower growth in most economies.
While both measures of inflation typically move in line with economic cycles, construction cost inflation can also be driven by a range of market-specific factors that may influence cost. This can include the level of local construction activity, labour and materials cost and availability, legislation changes and supply chain disruptions.
Africa leads construction cost inflation at an average of 6.6 percent, while North America also displayed higher than usual levels of inflation at 6.1 percent. Europe experienced a modest increase in inflation of 2.8 percent, and, the UK had a slightly lower inflation rate than the global median at 4.2 percent.
The rate of growth in construction costs is showing signs of easing at the global level. On average, construction cost inflation is projected to settle to 3.3 percent globally this year, with all regions anticipating lower inflation compared with 2023.
Africa expects the highest level of construction cost inflation, at a forecasted 5.7 percent in 2024. Lagos notably leads this increase with an estimated rise of 25.0 percent alone. Higher import prices, driven by elevated global inflation and exchange rate passthrough, have impacted domestic prices in Nigeria. The domestic factors were primarily around materials and labour costs. The shift to a market-determined exchange rate also introduced shocks to prices at home. Additionally, security challenges, prolonged infrastructural deficits and expectations of further price increases have contributed to inflationary pressures.
The Middle East follows, expecting a construction cost inflation rate of 4.0 percent in 2024, followed closely by South America and Asia, each with an average of 3.9 percent. Europe anticipates the lowest level of inflation in 2024, with an average of 1.5 percent. The UK follows with its construction cost inflation rate at 3.0 percent. No market is expecting deflation in 2024.
Demand is a primary driver of construction cost inflation, with increasing client investment and a growing pipeline of work leading to heightened competition among contractors and upward pressure on prices.
Looking ahead, we anticipate that price pressures in the construction sector may not alleviate as rapidly as general inflation, and therefore, construction cost escalation could prove to be persistent across various regions.
Globally, construction costs are anticipated to rise at a similar rate in 2025, by 3.4 percent. However, market differences are evident even within regions. Construction cost inflation is expected to nudge upwards in North America, Europe, Australia and New Zealand, and Africa, while it is projected to decrease in South America, the Middle East and Asia. In the UK, construction cost inflation is expected to remain steady in 2025 at 3.0 percent.
Africa is again expected to experience the highest levels of inflation at 5.9 percent on average. North America, Asia, and Australia and New Zealand follow, albeit with some distance, with expected increases of 3.0 percent, 3.8 percent and 3.7 percent in 2025, respectively. Conversely, Europe anticipates the lowest inflation of 1.9 percent in 2025.
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Figure 8: Construction cost inflation across 2023, 2024 and 2025
Source: Turner & Townsend International construction market survey 2024
Input costs
Labour
A global rise in labour costs, brought on by persistent skilled labour shortages, is exerting upward pressure on overall construction expenses. The skilled labour shortage remains prevalent in most developed nations, exacerbated by an ageing workforce, high retirement rates and insufficient recruitment of young people seeking careers in construction.
Critical levels of skilled labour shortages remain in Australia and New Zealand and the UK. Skilled labour shortages have also become more pronounced in North America with 91 percent of respondents identifying labour as an acute issue.
Conversely, labour availability has slightly improved in South America, though demand for high-tech projects in major regional markets such as Bogota and Santiago is leading to a growing number of skilled workers being imported from other regions.
Following the COVID-19 pandemic, numerous construction workers have also migrated to different industries where work is perceived as less laborious.
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Figure 9: Availability of construction labour by region
Source: Turner & Townsend International construction market survey 2024
Low unemployment rates are driving up labour costs in many developed markets, including Australia, Europe, the US and Canada. Subcontractors for specialised jobs such as mechanical and electrical are facing significant strains in Japan and the UK in particular.
Conversely, developing and emerging markets are experiencing higher unemployment rates while grappling with the lingering effects of the pandemic and various geopolitical tensions. Regions such as Africa, South America and some markets in eastern Europe show a better balance between job vacancies and the available workforce, which is helping to maintain stability in labour costs.
To assess inflationary pressures stemming from labour issues, we gather wage data across our markets and evaluate their impact on projects and programmes. Our 2024 survey findings have been influenced by exchange rate fluctuations, yet they consistently reveal an increase in construction wages over the past 12 months. Examining changes in domestic currency provides clearer insights into underlying trends, with labour costs averaging a 4.6 percent rise over the past year, slightly below the growth levels observed between 2022 and 2023.
As a result of higher consumer price inflation, the industry has encountered sustained pressures to raise salaries, further contributing to the inflationary challenges faced by construction companies.
Source: Turner & Townsend International construction market survey 2024
Materials
Although still rising, the prices of key construction materials have experienced some relief, decreasing from the exceptionally high levels of price growth seen in previous years. For example, the reduction in the cost of iron ore has had a positive impact on steel prices. Additionally, the pandemic-related disruptions to supply chains have eased, and the return of shipping costs to pre-pandemic levels is supporting the stabilisation in building material costs.
Nevertheless, geopolitical tensions and ongoing conflicts continue to pose a threat to the global supply chain. These ongoing risks, along with lessons learned from the COVID-19 pandemic, are prompting some economies to reconsider their trade strategies and relocate some production activities closer to home. In efforts to mitigate risks associated with supply chain dependence, the US has explored Mexico as an alternative for certain components previously imported from China. Similarly, India, Indonesia and several African countries have emerged as global alternatives for material manufacturing.
We expect that, over the coming years, we will continue to see the move away from globalised supply chains with more friend-shoring and onshoring taking place. While this might provide greater supply chain certainty, it could also add additional costs as domestic production may involve higher labour and plant expenses. However, some positive reductions might result from shorter shipping distances, which would also decrease projects’ embodied carbon footprints.
Source: Turner & Townsend International construction market survey 2024
Plant
We measure plant costs as day hire rates, considering labour, consumables (e.g. fuel) and sales tax for a 50-tonne mobile crane with an operator per day. Our data indicates that plant costs have risen by 3.4 percent compared with last year, as have overall operational costs of plant, machinery and equipment. As well as inflationary pressure from the labour market, some of these increases can be attributed to the growth in oil prices. The cost of oil has a strong interdependency with economic cycles. When economic activity rises, so does the demand for oil, causing its price to surge. According to data from the World Bank, the price of Brent crude oil has escalated by 8.8 percent between March 2023 and March 2024.
Oil stands out as one of the world’s most volatile commodities, in part because many oil-producing regions, including the Middle East, Latin America and Russia, are experiencing political turbulence. The heightened risk of regional crises leads to global oil price fluctuations, which impact energy markets and economies worldwide.
Tendering conditions and construction industry outlook
Assessing current tendering conditions and anticipating how these may change provides valuable insights into what stage of the cycle a construction market is at and can be a key indicator of future cost inflation.
In markets where tendering conditions are classified as cold or lukewarm, intense competition among contractors for fewer available projects is common, leading to heightened commercial tension, which often drives prices down. Conversely, hot or overheating tendering conditions typically signify markets with robust project pipelines and full order books, which can push up margins and labour costs and drive higher construction costs.
At the global scale, tendering conditions are notably warm, exerting downward pressure on construction costs. Central banks globally responded to elevated general inflation by increasing interest rates, consequently dampening investment for construction projects. This trend affected most markets, placing them within the warm and lukewarm regions.
In 2023, 25.8 percent of respondents identified tendering conditions as either cold or lukewarm. However, in 2024, this proportion increased to 39.6 percent. Only 3.3 percent of markets reported cold tendering conditions, primarily attributable to specific circumstances such as political uncertainty in Santiago, which has hindered foreign and local investment.
At the same time, the proportion of markets seeing hot or overheating tendering conditions decreased from 25.8 percent in 2023 to 14.3 percent this year. Most of these are markets that have experienced a release of pent-up demand following periods of volatile inflation and tightening financial conditions such as New York City, Ottawa and Dubai.
46.2 percent of our surveyed markets reported warm tendering conditions. This aligns with the findings of our 2023 survey, when 48.3 percent of respondents also identified warm tendering conditions as prevalent across markets.
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Figure 12: Regional construction tendering conditions
Source: Turner & Townsend International construction market survey 2024
Looking ahead, 42.9 percent of markets anticipate conditions to stay the same, while 35.2 percent expect conditions to get warmer. This marks an improvement from last year, when more than half of respondents, 56.2 percent, expected market conditions to stay the same. Additionally, the number of people expecting warmer market conditions has increased by 8.2 percentage points on the year.
For most markets, the potential for a recession has receded, and though growth remains subdued, signs of progress are emerging. Several countries and regions will undergo elections this year, bringing promises of investment to the forefront and fostering a sentiment of new opportunities within the industry.
However, a notable proportion of markets, 22.0 percent, anticipate their markets will cool down. This increased from 16.9 percent in 2023. Primarily, these are European markets that have encountered heightened inflationary pressures and disruptions in the supply chain due to the conflict in Ukraine.
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Figure 13: Regional construction market outlook
Source: Turner & Townsend International construction market survey 2024
Looking ahead
There are reasons to be optimistic as we turn our attention to the second half of 2024 and beyond. As consumer price inflation gets under control across each economy, we expect to see the implementation of supportive policy setting, which for most markets could be a trigger for private sector construction investment.
Additionally, we expect there to be fiscal stimulus from governments to prompt public investment across the construction sector, which for many is a substantial contributor to economic growth.
There are also several key sectors poised to see sizeable growth in the years ahead. This includes data centres and advanced manufacturing facilities, driven by the continued advancement in technologies and the drive to net zero. The renewable energy sector is likely to continue to expand, as will life sciences, driven by an ageing population and advancements in biopharmaceuticals.
Skills shortages are one of the most significant challenges we foresee with a growing need for the construction sector to improve productivity and efficiency. Addressing these challenges will open up the possibility of cheaper construction costs, which in turn will help to ensure the growth of global construction markets.
The outlook is not without risks and challenges. The construction workforce is structurally shrinking with the sector continuing to see more retirees than fresh entrants. Additionally, construction cost inflation continues to be a constraint impacting the feasibility and viability of new projects.
